A month has gone by since the last earnings report for Masco (MAS). Shares have added about 2.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Masco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Masco (MAS) Q2 Earnings & Revenues Top Estimates
Masco Corporation reported impressive results for second-quarter 2020, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Strong Decorative Architectural Products and North American Plumbing segments helped it deliver the better-than-expected results.
Notably, its board of directors intends to increase annual dividend by 2 cents per share to 56 cents in the beginning of the fourth quarter. Also, it anticipates strong demand for products to continue in the third quarter.
Inside the Headlines
Masco reported quarterly adjusted earnings of 84 cents per share, which beat the consensus mark of 71 cents by 18.3%. Net sales of $1,764 million topped the consensus estimate of $1,693 million by 4.2%.
On a year-over-year basis, the top and bottom lines declined 4.1% and 13.5%, respectively. Notably, net sales fell 3% year over year in local currency. Sales in the North American region were nearly flat with the prior-year figure but declined 19.1% internationally (17% in local currency).
Plumbing Products: Sales in the segment decreased 14.2% year over year to $868 million, primarily due to lower volumes. In local currency, the segment’s sales dropped 13% year over year. Adjusted operating margin contracted 150 bps year over year to 18.3%. Adjusted EBITDA declined 18.6% year over year to $179 million.
Decorative Architectural Products: The segment reported sales of $896 million, up 8.3% from the prior-year period. Growth in paints and other coating products supported the same. Adjusted operating margin increased 160 bps to 22.5%. Adjusted EBITDA also improved 15.8% from the prior-year period to $212 million.
Adjusted gross margin came in at 35.8%, which contracted 90 bps from the prior year. Adjusted selling, general and administrative expenses — as a percentage of net sales — were down 140 bps from the year-ago figure, as a result of its focus on cost containment in the quarter.
Adjusted operating margin fell 50 bps on a year-over-year basis to 19.5%. Adjusted EBITDA also declined 1.6% year over year to $376 million.
At quarter-end, the company had cash and cash investments of $1,089 million compared with $697 million recorded at 2019-end. Long-term debt was $2.4 billion, down from $2.8 billion a year ago. Net cash from operating activities was $290 million in the first six months of 2020 compared with $213 million a year ago.
As of Jun 30, 2020, it had full availability of the $1-billion revolving credit facility.
Masco expects total sales to be between flat to up 10% in the third quarter. This includes Plumbing Products sales in between down 5% to up 5%, and Decorative Architectural Products of up 7-17%.
Overall adjusted operating margin is expected to be similar to third quarter 2019 level of 17.4%. Likewise, it expects Plumbing Products and Decorative Architectural Products segments’ margin is expected to be similar to the year ago period’s level of 18.7% and 18.9%, respectively.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 18.81% due to these changes.
Currently, Masco has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Masco has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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